Wellnex Life Limited

WNX Details

Secured Distribution for Performance Inspired: Wellnex Life Limited (ASX: WNX) is engaged in the sale and distribution of health and wellness products. Recently, the company has secured distribution for Performance Inspired (a leading nutrition and supplement brand in the US) with Chemist Warehouse, a leading pharmacy retailer in Australia. Chemist Warehouse operates over 500 stores in Australia and New Zealand and also possesses an extensive online platform, which may help WNX to generate brand awareness and sales.

• As announced on 30 September 2021, the company has refinanced its previous, unconverted Loan Note to the value of $2 million, with the issue of a new Convertible Note at a conversion price of $0.20 per share.
• This resulted in successful fund raising of $2.5 million on more favourable terms and left the company with an ample amount of capital to execute its current business plans.

Market Scenario:

• As per the company’s reports, the nutrition and supplement market is one of the quickly rising segments in the health and wellness sector and sports nutrition contributes with a market share of $1.3 billion in Australia.
• WNX would continue to increase its established brand and product portfolio in the health and wellness market throughout its substantial distribution network. This would be backed by over 15 brands distributed in retailers, which indicates over 90% of sales in the health and wellness sector.

FY21 Financial Highlights:

• Rising Top line: For the year ended 30 June 2021, the company recorded a growth of 29.6% in revenue and other income from ordinary activities to $1.43 million against $0.93 million in FY20. This growth was supported by increasing distribution of both Uganic and Little Innoscents.
• Decline in Losses: Backed by the removal of Corio Bay Dairy Group (CBDG) and associated expenses, the company managed to improve its losses to $20.1 million as compared to $65.44 million in FY20.
• Improvement in Outflows: As a result of the continued restructuring of the business as well as a prudent capital management program, the company recorded an improvement of 42.1% in net cash outflow from operating activities to $4.38 million.
• Strong Start for FY22: For the first two months of FY22 (July and August 2021), WNX recorded a growth of 49% in revenue against pcp. The company has received $2.81 million in recognised revenue, which does not include significant purchase orders.

Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Disruptions: The company is exposed to the uncertainties arising from the global health pandemic, and as a result, operational and financial health could be at risk.
• Consumer Sentiments: WNX is also exposed to a risk arising from changing sentiments of consumers, which may impact its topline growth.

Outlook:

• Looking forward, the company anticipates ramp-up of revenue, to be supported by the rollout of the Wagner Liquigesic brand in October 2021 and received initial purchase order of circa $1 million.
• WNX is seeking to expand its current Little Innoscents offerings with new products and formulations and looking at options for its Uganic infant formula range.

Stock Recommendation: At the end of FY21, the company witnessed a reduction in borrowings by $7.1 million through a conversion to equity as well as $2.1 million raised under a rights issue. This resulted in the strengthening of the financial position of WNX. The company closed FY21 with cash and cash equivalents of ~$7.7 million as compared to ~$1.11 million as on 30 June 2020. The stock of WNX is trading near to its 52-week low level of $0.097, offering a decent opportunity for accumulation. Considering the growing revenue, improving bottom line, a strong start to FY22, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.105, as on 27 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration associated risks arising from the uncertainties from COVID-19, changing consumer sentiments and regulatory risk.

WNX Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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